On June 28, 2024, the U.S. Supreme Court issued a landmark decision in the case of Loper Bright Enterprises v. Raimondo. In a 6-3 decision authored by the Court’s Chief Justice, John Roberts, SCOTUS overturned its decision in Chevron USA v. National Resources Defense Council, and with it, forty years’ worth of precedent.

Background

For many years even before Chevron, courts agreed that government agencies should be permitted some deference to interpret the statutes they are charged to enforce. It was generally recognized that government agencies employed experts in their respective fields and that their interpretation of ambiguous statutes was aided by that expertise and therefore deserved, at least, respectful consideration. After all, agencies existed because Congress couldn’t feasibly legislate for every possible eventuality.

Building on those core concepts, Chevron cemented a significant level of deference to agencies. It created a two-step test:

Step 1: Is the statutory language clear and unambiguous? If yes, the statutory language controls.

Step 2: If a statute is ambiguous, the agency’s interpretation will be upheld by the reviewing court, even if that court itself might have chosen a different interpretation, so long as the agency’s interpretation was not unreasonable.

While Chevron has been refined over time, the general test stood for forty years, during which time it was one of the most important principles in administrative law. By giving executive agencies more freedom to implement laws, it expanded the power of the federal government. It affected nearly every corner of American life, from the financial markets to the environment.

In particular, it reshaped the world of labor and employment law, which over the past decade in particular, has been regulated primarily by executive agencies like the Department of Labor (DOL), Equal Employment Opportunity Commission (EEOC), and National Labor Relations Board. In just the past year or so, the Federal Trade Commission’s (FTC) non-compete ban, the Department of Labor’s overtime rule, and the EEOC’s final rule involving accommodations under the Pregnant Workers Fairness Act were all developed under the umbrella of Chevron deference and those agencies’ understanding that their interpretations of the law, absent some clear unreasonableness, would prevail against scrutiny by the Courts.

Of course, that’s not to say agencies could act with impunity or that their regulations never faltered in the Courts. The FTC’s ban on non-competes, for example, was already facing a court challenge. But when SCOTUS handed down its ruling in Loper and formally did away with Chevron deference, it sent shockwaves through the world of administrative law.

Now, agencies, according to the Court, “have no special competence at resolving statutory ambiguities. Courts do.” Courts can no longer “mechanically afford binding deference to agency interpretations” and must instead use their own prudence and “every tool at their disposal” to read statutes, resolve ambiguity, and determine whether an agency’s interpretation should be upheld.

In the world of employment law, this will have a massive impact. In the last circulation of this newsletter, I wrote about how the Department of Labor expanded overtime protections for millions of salaried workers by raising the salary threshold from $35,568 to $43,888 on July 1, 2024, with additional increases to come. This action is based entirely on the DOL’s interpretation of the Fair Labor Standards Act (FLSA) because the FLSA’s language doesn’t specifically set forth a salary threshold.

Such an increase had previously been rejected by a federal district court in the middle of the Obama-Trump transition in 2016, when the judge ruled the DOL had no authority to impose a minimum salary requirement. The court ruled that way even though at the time it was required to defer to “reasonable” agency interpretations under Chevron deference. The Supreme Court’s ruling in Loper seems to provide an even stronger basis for courts to strike down aggressive labor and employment regulations in the coming months and years.

Where does this leave employers?

Importantly, SCOTUS noted that prior decisions relying on the Chevron framework are not automatically overturned, but the end of Chevron does mean agencies will have a more difficult time defending challenges to their regulations. The end of Chevron will also probably mean inconsistent results, with some district courts reaching different decisions than their sister courts.

In a few words, the end of Chevron means this for employers: more uncertainty. More uncertainty over the fate of older regulations and new proposals. Given recent discord in Congress, it is likely that many significant labor and employment rule changes will continue to come from executive agencies. Employers will be left to scramble, react, and comply with them, all the while knowing the agencies’ actions are now less likely to be upheld by the courts. In light of that, employers would be wise to dedicate resources to keep an even closer eye on the federal courts and challenges to federal labor and employment law agency actions because the world of labor and employment law is set for a potential rollercoaster ride in the very near future.